Watching your children grow up is an unavoidably bittersweet thing. You get to enjoy each and every one of their firsts, and watch them create their own path through what can sometimes be a difficult life – but in so doing, you watch them grow, leave childhood behind and eventually leave home. Preparing for their future is a part of your every day, but their financial future should be a key consideration in the same regard. Why should you consider saving for your child’s future now, and how?
Why Start Saving?
With the cost-of-living crisis causing so much hardship for so many families, it is understandable why saving for a young child might not seem like the wisest short-term decision. However, it is exactly the same mechanisms behind our present-day financial struggles that make saving for your child’s future an imperative act.
Inflation, so far, has been generally outpacing the rate of wage increases across the country. This essentially means that things have been getting more expensive faster than we are getting pay rises. This is not the sole shape of things to come, but it does indicate the fragility of the systems on which we rely – and a great deal of good that a small amount of money saved back can do for your child in the future. There is also the matter of compound interest which can do so much more with a little more time.
Here, we’ll treat the term ‘trust fund’ as an umbrella term, to describe the various ways in which you can save for your child in the long term. The purpose of a trust fund is effectively to place money in your child’s name without outright giving it to them. The holdings within the fund grow, thanks to your input and to compound interest, and when your child is old enough you give them the keys to the account.
Any form of savings vehicle can be used for this, but ISAs are a great choice for their high-interest potential, tax exemption on interest and the option to lock the money away completely. This simple act can be a revolutionary one for your child’s future, whether giving them the cash injection to thrive through university studies or giving them enough of a lump sum to fast-track buying their first home.
Help With Emergencies
Your child’s eventual shift to independent living will, like any other life, be hampered by unexpected costs and emergencies. Your role as a parent will incentivise you to pitch in at such times, even to the detriment of your own financial situation. For this reason, it can be wise to consider a second, smaller tranche of savings put aside as a form of emergency fund. These savings would not be added to beyond a certain point, but would be a useful secret breakwater from financial difficulty that you could break out for your child at the right time.